Nil rate band (NRB) meaning

The Chancellor of the Exchequer, Rachel Reeves, delivered the government’s Autumn Budget on 30 October 2024 Keenly awaited and watched, this was the first Budget from a Labour administration in fourteen years, and the first ever presented by a woman Chancellor. Many headline measures for Private Clients had been trailed in one form or another, and several of the changes—such as the Capital Gains Tax reforms—were not as draconian as many had feared, proving less severe than anticipated. It was definitely a Labour Budget, unmistakably Labour in flavour, with the Chancellor honouring election pledges not to raise income tax or National Insurance for ‘working people’, and instead securing the £40bn of tax rises by lifting employers’ National Insurance, narrowing the scope of IHT agricultural and business property reliefs, increasing CGT rates, reforming the taxation of carried interest, changing the rules for non‑UK domiciled individuals, bringing inherited pensions into the IHT net, confirming VAT on private school fees, increasing the SDLT surcharge for second homes, and even a hike in...

See Q&A: In 2006, the deceased’s spouse set up a nil rate band trust (NRB) in his Will, funded by a £285k loan note issued by his wife. The loan note was the only paperwork and the trust was never registered on the Trust Registration Service (TRS). The deceased’s children want the trustees to appoint the value to their own children. Do charges under the relevant property regime arise for this trust? Should the trustees register the NRB trust on the TRS retrospectively and make disclosures to HMRC? Relevant property trust charges For the ten-year anniversary charge, the available nil rate band (NRB) forms part of a calculation to derive the effective rate (ER), which then sets the actual inheritance tax (IHT) rate applicable to the specific trust. The actual rate equals 30% of the ER. As the ER cannot exceed 20%, the highest actual rate is 6%. Accordingly, the calculation limits the potential charge to this ceiling in practice...

In this issue: General election 2024 Trusts Court of Protection UK taxes for Private Client Tax avoidance, evasion and non-compliance Scotland, Wales and Northern Ireland Question of the week Additional Private Client updates this week Daily and weekly news alerts LexTalk®Private Client: a Lexis®PSL community New and updated content Dates for your diary Trackers Latest Q&As Useful information General election 2024 General Election 2024—parliamentary process, wash-up and manifesto pledges This News Analysis brings together coverage of the 2024 General Election by practice area. It includes commentary from practice area specialists, Practical Guidance materials, news, analysis and journal articles. For further information, see News Analysis: General Election 2024—parliamentary process, wash-up and manifesto pledges. Trusts Constructive trust and transfer for CGT purposes (Morgan v Revenue and Customs Commissioners) The FTT examined a dispute about whether a constructive trust arose over a property so that a disposal occurred...

This Practice Note outlines the principles governing the calculation and use of the basic nil rate band (NRB) and the transferable NRB on death, and flags key practical points on the operation of those calculations. For broader guidance on the NRB, the transferable NRB and the residence NRB (RNRB) (also called the additional threshold), including how to claim these reliefs and the relevant time limits, see Practice Notes: IHT—nil rate band (NRB) and transferable NRB and IHT—residence nil rate band. Nil rate band The NRB removes a significant slice of a deceased person’s estate from inheritance tax (IHT), and in many cases eliminates any IHT liability altogether. The current NRB threshold is £325,000, which produces an IHT saving of £130,000. In the RNRB context, which applies to deaths on or after 6 April 2017, the NRB is sometimes described as the basic NRB. For historic threshold figures, see: HMRC: IHT thresholds and interest rates. In certain cases, the free estate on death may not secure the whole of...

Nil rate band (NRB) and transferable nil rate band (TNRB) Each individual’s estate is assessed for inheritance tax (IHT), but a portion is charged at zero per cent, known as the nil rate band (NRB). For the 2023–24 tax year this stands at £325,000. The government stated in the Autumn Statement 2022 that this figure will be held at the same level until 5 April 2028. See: Autumn Statement 2022—Private Client analysis—Key Private Client announcements. Before 9 October 2007, where the chargeable transfer on death did not fully use the deceased’s available NRB—either because the estate was below the threshold or assets passed to an exempt beneficiary—the associated tax saving was not completely realised. A common illustration is spouses leaving their whole estates to each other under a Will; and, in the absence of a Will, a substantial share, if not the entire estate, often passes to the surviving spouse under the intestacy rules. As transfers between spouses are exempt from IHT, such gifts are not chargeable transfers...

In disputes concerning how documents are to be read, including a claim about construing a Will, the court’s task is to identify the sense a Will would communicate to a reasonable reader equipped with all background knowledge reasonably available to the testator when the Will was made, as explained by Lord Hoffman in the Investors’ Compensation Scheme Ltd case. For a summary of the courts’ overall approach to construction disputes, see Practice Note: Will interpretation—principles of construction. This Practice Note centres on the construction of nil rate band (NRB) legacies in Wills and, in particular, the manner in which the courts will determine the value of assets passing to the legatee(s), which assets pass to the legatee, and how the residue of the estate is therefore constituted. The Practice Note also reviews precedent wording for NRB legacies and practical points that may arise following the testator’s death in practice. What is the NRB? Every individual’s estate is free of inheritance tax (IHT) up to a defined threshold known...

THIS DEED THIS DEED is executed on [ date ] Parties [ Name of spouse or civil partner who is residuary beneficiary entitled under the Will ] of [ address ] (the Residuary Beneficiary) [ Names of beneficiaries of inserted NRB legacy ] of [ addresses ] (the Nil Rate Band Beneficiaries) [ Names of executors ] of [ addresses ] (the Executors) BACKGROUND (A) [ Name of deceased ] (the Deceased) passed away on [ date of death ], having left a last Will dated [ date of last Will ] (the Will). (B) A grant of probate in respect of the Will was issued by the [ Principal OR [ name ] District Probate ] Registry of the Family Division of the High Court to the Executors on [ date of grant of probate ]...

1 Legacy of nil rate band on discretionary trust 1.1 [ If my Spouse survives me ] I direct my Trustees, free of inheritance tax and foreign death duties, to receive the greatest sum of money (if any) that may, in the circumstances prevailing at my death, be provided under this clause without any liability arising for the payment of inheritance tax on, or by reason of, my death (the Nil Rate Band Legacy). For the avoidance of doubt, and without limiting the generality of the foregoing, the circumstances to be considered shall include: any chargeable transfers made by me during my lifetime (or events treated as such for inheritance tax purposes); the dispositions taking effect under this Will (other than this clause 1) or any codicil to it; and any property regarded as forming part of my estate immediately before my death for inheritance tax purposes...

A nil-rate band discretionary trust A nil-rate band discretionary trust is a common method for reducing inheritance tax. It typically concerns property held by two people (most often a husband and wife as co-owners). They must own the home as beneficial tenants in common, meaning that any existing beneficial joint tenancy has to be broken. Each then executes a Will so that their share of the property, up to the inheritance tax nil-rate band, is directed not to the spouse but into a discretionary trust. The usual discretionary beneficiaries are the surviving spouse and the children. Instead of the survivor taking outright the other’s share of the property (whether by survivorship where it was a beneficial joint tenancy or by a legacy), the trust retains that share and, on the death of the survivor, the portion within the trust does not fall into the estate for inheritance tax purposes...

Practice Note: Relevant property trusts—the principal (ten-year) charge within the Trusts—inheritance tax subtopic For details on the inheritance tax (IHT) rules applicable to discretionary trusts under the relevant property regime, see Practice Note: Relevant property trusts—the principal (ten-year) charge within the Trusts—inheritance tax subtopic...

If an individual does not exhaust their inheritance tax nil rate band (NRB) on death—perhaps because a large share of the estate passes to a surviving spouse or civil partner—the Inheritance Tax Act 1984, sections 8A to 8C, sets out provisions allowing the unused NRB, wholly or partly, to be transferred and applied to increase the survivor’s NRB when that person dies. The mechanism preserves a proportion of the first estate’s NRB, which can then uplift the allowance available to the surviving spouse or civil partner on their death. The uplift is determined by a statutory calculation in IHTA 1984, section 8A(3) and (4)...